Asset Protection Trusts Offshore

October 01, 2018
By
Brown & Vogel, LLC

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When an affluent individual or family has very high potential for liability
and lawsuits (such as a physician), domestic asset protection strategies
might not be enough. It sometimes makes sense to use international offshore
planning strategies.

Offshore entities have the reputation of “hiding” assets or
of being used to evade taxes. However, asset protection trusts have nothing
to do with taxes, and nothing is really hidden. You will report the existence
of your trust on your tax return and if you lose a liability-related lawsuit,
you will be asked to declare under oath the extent of your assets. Therefore,
the goal is to create a private trust in a jurisdiction, and in such a
way, that even though the creditor knows of the existence of the trust,
he cannot reach the assets.

Maintaining control of your assets is a cornerstone of any offshore planning.
The assets can still he held in a U.S. financial institution, probably
with the same financial advisor you are currently working with. The key is that
ownership of those assets resides in a foreign country, one with more favorable
asset protection laws.

Typically, a trust is established for the benefit of the client, along
with a limited liability company (“LLC”). The trust’s
situs (similar to domicile) is in a country with favorable asset protection
laws, so that the assets in the trust are governed by that country’s
laws. A trust needs a trustee, so the trustee must be located in that
country. However, the trustee does not have actual possession of the underlying
financial assets.

The underlying financial assets are owned by an LLC. The LLC is owned by
the trust. The LLC is managed by its Manager, who has control over the
LLC assets. Generally, the manager is the client, so the client retains
control over the assets. In this manner, we can separate
control over the assets in the hands of the manager, (the client), from
ownership in the trustee who is domiciled in a country with favorable asset protection
laws. Therefore, the client can continue to manage and invest the assets,
but actual ownership of the LLC belongs to the offshore trustee.

Each foreign (offshore) jurisdiction has its own statutes that regulate
how it will handle assets under its jurisdiction. There are several elements
in asset protection statutes, and each of them impacts how effective planning
will be in that specific jurisdiction. Here are some key considerations:

Statutory Certainty Regarding Non-recognition of Foreign Judgments. This
would include specific language that judgments from other countries will
not be recognized.

Statute of Limitations for Challenging Asset Protection Trust.Statute of
limitations is the time in which a claim must be brought in order for
the court to rule on the claim. The shorter this period is, the more advantageous
that country’s legislation is from a protection standpoint.

Burden of Proving Fraudulent Intent is Always on Creditor. Certain bodies of law require the creditor to prove that assets were moved
improperly. This is a very difficult burden to meet, and therefore very
effective for asset protection planning purposes.

“Beyond a Reasonable Doubt” Standard of Proof Required in Establishing
Fraudulent Intent. This is the highest standard of proof in the judicial system, and very
difficult to meet.

Statutory Certainty That the Asset Protection Trust Remains Valid if Fraudulent
Transfers Took Place. Even if certain transfers to the trust are later
found to be improper, the assets which were transferred properly remain
protected.

Statutory Presumption against Fraudulent Intent. Some countries include
this presumption in their law, which helps from a protection standpoint.

Statutory Certainty That a Trustmaker Can Be a Beneficiary. This allows
the trustmaker to benefit from the assets in the trust without affecting
the asset-protection qualities of the trust.

Statutory Certainty That a Trustmaker Can Retain Some Degree of Control.
This allows the trustmaker to continue to make investment and management
choices for the assets in the trust.

Statutory Posting of Bond before Litigation. Some legislation includes
a requirement that a plaintiff must post a bond with the court system
before filing a lawsuit. This is a further barrier to many creditors.

Other qualities to look for in an offshore jurisdiction include: the economic
and political stability of the Jurisdiction; costs associated with the
asset protection planning; ease of travel and communication; availability
of banks and investment advisors; crime rates in the jurisdiction; whether
English is spoken; and the influence of other countries.

The information on this website is for general information purposes only.
Nothing on this site should be taken as legal advice for any individual
case or situation. This information is not intended to create, and receipt
or viewing does not constitute, an attorney-client relationship.